Validation of Direct Natural Gas

Validation of Direct Natural Gas

Validation of Direct Natural Gas

GTI-09/0007 FINAL REPORT Validation of Direct Natural Gas Use to Reduce CO2 Emissions Report Issued: June 26, 2009 Prepared by: Gas Technology Institute 1700 S. Mount Prospect Rd. Des Plaines, Illinois 60018 Subcontractor Science Applications International Corporation 8301 Greensboro Drive McLean, Virginia 22102 GTI Technical Contact: Neil Leslie, P.E. R&D Manager End Use Solutions 847-768-0926 Fax: 847-768-0501 neil.leslie@gastechnology.org Prepared for: American Public Gas Association American Public Gas Association Research Foundation Interstate Natural Gas Association of America The INGAA Foundation, Inc.

National Fuel Gas Distribution Corporation National Grid Nicor Gas Piedmont Natural Gas Company Sempra Energy Utilities Southwest Gas Corporation

Validation of Direct Natural Gas

Validation of Direct Natural Gas Use to Reduce CO2 Emissions ii Disclaimer This report’s findings are general in nature, and readers are reminded to perform due diligence in applying these findings to their specific needs, as it is not possible for the authors or sponsors to have sufficient understanding of any specific situation to ensure applicability of the findings in all cases. The authors and the sponsors assume no liability for how readers may use, interpret, or apply the information, analysis, templates, and guidance herein or with respect to the use of, or damages resulting from the use of, any information, apparatus, method, or process contained herein.

In addition, the authors and the sponsors make no warranty or representation that the use of these contents does not infringe on privately held rights.

Validation of Direct Natural Gas

Validation of Direct Natural Gas Use to Reduce CO2 Emissions iii TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY . . 1 2.0 BACKGROUND . . 3 2.1 Energy and Emissions Trends . . 3 2.2 Why is Full Fuel Cycle Analysis Needed . . 4 3.0 PROJECT OVERVIEW . . 6 3.1 Objectives . . 6 3.2 Scope of Work . . 6 3.3 Approach . . 6 3.3.1 Project Team and Modeling Approach . . 6 3.3.2 Scenario Descriptions . . 7 4.0 RESULTS AND DISCUSSION . . 10 4.1 Impact on Building Energy Consumption . . 10 4.2 Impact on National Energy Consumption . . 11 4.3 Impact on CO2 Emissions . . 12 4.4 Cumulative Consumer Savings . . 13 4.5 Cost per Tonne of CO2 Emission Reduction .

. 14 4.6 Impact on Natural Gas Production . . 19 4.7 Impact on Natural Gas Prices . . 20 4.8 Impact on Electric Generation . . 22 5.0 CONCLUSIONS AND RECOMMENDATIONS . . 23 APPENDIX A . . 24 A.1 Metrics for Energy Use and Emissions . . 24 A.2 Project Description . . 27 A.3 Detailed Scenario Descriptions . . 29 A.3.1 PR1: 40% Natural Gas Equipment Subsidy . . 29 A.3.2 PR2: Natural Gas Education . . 30 A.3.3 PR3: Increased Natural Gas R&D . . 31 A.3.4 AE50: 50% Electric Equipment Subsidy . . 31 A.4 Cost of Retrofit for Gas Appliances and Insulation . . 32 A.5 Summary of Prior Study Results .

. 33 A.6 Model Results . . 34 A.6.1 Shipments . . 34 A.6.2 Installed Stock . . 38 A.6.3 Market Share . . 40 A.6.4 Energy Demand . . 44 A.6.5 Total Energy Expenditure . . 47 A.6.6 Generation Impacts . . 49 A.6.7 Power Generation . . 52 A.6.8 Total Energy Production . . 53 A.6.9 Energy Prices . . 55 A.6.10 Residential Natural Gas Consumption . . 57 A.6.11 Commercial Natural Gas Consumption . . 59 A.6.12 Scenario Impact by Census Region . . 61 A.6.13 Electric Space Heating by Region- Stock and Efficiency . . 66

Validation of Direct Natural Gas

Validation of Direct Natural Gas Use to Reduce CO2 Emissions iv LIST OF FIGURES Figure 1 Gas and Electric CO2 Emission Trends in Residential and Commercial Buildings . . 3 Figure 2 Energy Use Trends 1950 – 2007 in Residential and Commercial Buildings . . 4 Figure 3 NEMS Model . . 7 Figure 4 Residential and Commercial Consumption - PR3 Change from Reference Case . . 10 Figure 5 Residential Gas Use per Customer – Gas Subsidy Scenarios Change from Reference Case . . 10 Figure 6 Total Delivered Energy: All Sectors . . 11 Figure 7 CO2 Emissions for all Scenarios . . 12 Figure 8 Residential and Commercial Energy Expenditures Change from Reference Case .

. 13 Figure 9 Energy Expenditures Change from Reference . . 14 Figure 10 CO2 Emission Reduction Relative to the Reference Case . . 15 Figure 11 Cost per Tonne of CO2 Reduction . . 16 Figure 12 Dry Natural Gas Production . . 19 Figure 13 Residential Natural Gas Prices . . 20 Figure 14 Commercial Natural Gas Prices . . 21 Figure 15 Generation Capacity Impacts . . 22 Figure A-1 Primary Energy Consumption . . 25 Figure A-2 Natural Gas Space Heating Shipments … . 35 Figure A-3 Electric Radiant Space Heating Shipments . . 35 Figure A-4 Natural Gas Heat Pump Shipments . . 36 Figure A-5 Electric Heat Pump Space Heating Shipments … .

36 Figure A-6 Natural Gas Water Heater Shipments . . 37 Figure A-7 Electric Water Heater Shipments . 37 Figure A-8 Natural Gas Furnaces Stock . 38 Figure A-9 Electric Resistance Space Heating Stock . 39 Figure A-10 Electric Heat Pump Stock . 39 Figure A-11 Market Share of Natural Gas Space Heating . 41 Figure A-12 Market Share of Electric Space Heating … 41 Figure A-13 Market Share of Electric Resistance Space Heating . 42 Figure A-14 Market Share of Electric Heat Pump Space Heating . 42 Figure A-15 Market Share of Natural Gas Water Heaters . . 43 Figure A-16 Market Share of Electric Water Heaters … .

43 Figure A-17 Total Energy Demand: Electricity vs. Natural Gas . . 44 Figure A-18 Residential Natural Gas Demand . 45 Figure A-19 Residential Purchased Electricity Demand … 45 Figure A-20 Commercial Natural Gas Demand . 46 Figure A-21 Commercial Purchased Electricity Demand . . 46 Figure A-22 Residential Total Energy Expenditure … … 48 Figure A-23 Commercial Total Energy Expenditure . . 48 Figure A-24 Generation Impacts: PR1 . . 50 Figure A-25 Generation Impacts: PR2 . . 50 Figure A-26 Generation Impacts: PR3 . . 51 Figure A-27 Generation Impacts: AE50 … 51 Figure A-28 Electricity Generation … .

52 Figure A-29 Generating Capacity . . 52 Figure A-30 Total Energy Production … 53 Figure A-31 Dry Natural Gas Production . . 53 Figure A-32 Coal Production . . 54 Figure A-33 Biomass Production … … 54

Validation of Direct Natural Gas

Validation of Direct Natural Gas Use to Reduce CO2 Emissions v Figure A-34 Residential Natural Gas Prices . . 55 Figure A-35 Residential Electricity Prices . 56 Figure A-36 Commercial Natural Gas Prices . 56 Figure A-37 Commercial Electricity Prices … … 57 Figure A-38 Residential Natural Gas Consumption 2030 . 58 Figure A-39 Residential Natural Gas Consumption 2030 - Change from Reference Case … … 58 Figure A-40 Commercial Natural Gas Consumption 2030 … 60 Figure A-41 Commercial Natural Gas Consumption 2030 - Change from Reference Case . 60 Figure A-42 Natural Gas Demand 2030 - New England … … 61 Figure A-43 Natural Gas Demand 2030 - Mid Atlantic .

62 Figure A-44 Natural Gas Demand 2030 – E. North Central . 62 Figure A-45 Natural Gas Demand 2030 - W North Central . . 63 Figure A-46 Natural Gas Demand 2030 - S Atlantic . 63 Figure A-47 Natural Gas Demand 2030 - E South Central … 64 Figure A-48 Natural Gas Demand 2030 - W South Central . . 64 Figure A-49 Natural Gas Demand 2030 – Mountain . 65 Figure A-50 Natural Gas Demand 2030 – Pacific . 65 Figure A-51 Electric Resistance Furnace Stock 2005 by Census Division … 66 Figure A-52 Electric Resistance Furnace Average Yearly Electricity Use 2005 by Census Division….. 66 Figure A-53 Electric Heat Pump Stock 2005 by Census Division .

67 Figure A-54 Electric Heat Pump Average Yearly Electricity Use 2005 by Census Division……………67 LIST OF TABLES Table 1 NEMS-DGU Model Scenario Descriptions . . 8 Table 2 Power Plant Capital Cost Savings from Reduction in GW . . 17 Table 3 Water Heater Fuel Switching and Thermal Envelope Upgrade Options for New Homes . . 18 Table A-1 Cost of Gas Retrofits . 33

Validation of Direct Natural Gas

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 1 1.0 Executive Summary This study analyzes the benefits of increased “direct use” of natural gas as a cost-effective mechanism to assist the nation in achieving two key goals: (1) increase the nation’s full fuel cycle energy efficiency; and (2) reduce national greenhouse gas (GHG) emissions. Objectives of this study were to: • Assess end use efficiency, national CO2 emission reductions, primary energy savings, and consumer cost savings through encouraging direct use of natural gas to displace less efficient practices by creating economic incentives for equipment and educating consumers to gain immediate benefits, and providing new technologies through R&D investments for sustainable long term benefits.

• Compare the merits of increased direct gas use relative to other options to meet national energy efficiency and CO2 emission reduction goals. In particular, compare the relative merits of providing a comparable level of subsidies to direct use of natural gas for space and water heating versus electric end-use resistance heating and water heating technologies. The analysis used the National Energy Modeling System (NEMS), the model used by the Energy Information Administration (EIA) to provide national energy forecasts in the Annual Energy Outlook (AEO) and to analyze energy and environmental legislation upon request by Congress.

The term “NEMS-DGU” (Direct Gas Use) is used in this report to distinguish use of the model in this project from uses by EIA. The NEMS-DGU analysis included three complementary and additive scenarios (PR1, PR2, and PR3) that encouraged direct use of natural gas as a part of a national energy and CO2 emission reduction strategy, and a fourth scenario (AE50) that investigated the impact of an aggressive (50%) subsidy of electric end use technologies. The NEMS-DGU model calculated energy, cost, and CO2 emission changes from 2010 through 2030 under these scenarios compared to the EIA AEO 2008 Reference Case.

Conclusions from this study include: • The increased direct use of natural gas will reduce primary energy consumption, consumer energy costs, and national CO2 emissions compared to the AEO2008 Reference Case (“business-as- usual”) • Subsidies provided to increase the direct use of natural gas will provide greater benefits than comparable subsidies to electric end-use technologies with respect to reducing primary energy consumption, consumer energy costs and national CO2 emissions.

• Subsidies provided to increase the direct use of natural gas, together with increased efforts in consumer education and R&D funding, in comparison to the AEO2008 Reference Case, will provide the following benefits by 2030: o 1.9 Quads energy savings per year o 96 million metric tons CO2 emission reduction per year o $213 billion cumulative consumer savings o 200,000 GWh electricity savings per year o 50 GW cumulative power generation capacity additions avoided, with avoided capital expenditures of $110 billion at $2,200/kW.

• By 2030, the benefits derived from subsidies to increase the direct use of natural gas significantly exceed those with respect to comparable subsidies to electric end-use technologies

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 2 in four out of the five categories above (all except for cumulative consumer savings, due to the assumption of the conversion from oil and distillate fuel to electricity in that scenario). • The natural gas subsidy scenario PR3 shows a 3.7% increase in residential gas prices and little increase in commercial gas prices compared to the Reference Case by 2030.

Natural gas prices fall in the electric subsidy scenario while electric prices are unchanged compared to the Reference Case.

• A direct natural gas use subsidy has significantly lower gross cost to reduce a metric ton (tonne) of CO2 than an electric end use equipment subsidy or a building insulation retrofit subsidy. Avoided cost of new power plant construction as well as consumer savings from efficient natural gas direct use can result in a substantial net societal savings from direct gas use, especially in new construction markets. • Retrofit markets pose unique challenges for direct gas use CO2 emission or primary energy reduction strategies. The high installed cost of retrofit of gas technologies (especially for electric homes and multifamily dwellings) compared to new construction as well as variability of retrofit costs complicates economics and incentive strategies.

It will be critical to focus on the most attractive regions and market segments to minimize the net cost per tonne in retrofit markets. • The natural gas end use equipment subsidy will increase the amount of natural gas used in the commercial and residential end use market, but it will result in reduced fossil fuel production and a net reduction in CO2 emissions. This is because of the better full cycle efficiency of natural gas end use equipment coupled with the resultant power generation fuel mix. • While the three natural gas end use equipment subsidy scenarios will result in a moderate increase in natural gas consumption reporting by Local Distribution Companies (LDCs), the per capita consumption declines.

The reduction in natural gas usage per residential customer ranges from 3 to 12% by 2020.

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 3 2.0 Background 2.1 Energy and Emissions Trends Buildings consume nearly 40 percent of the primary energy resources and 74 percent of the electricity generated each year in the United States1 . Homes and commercial businesses have been growing contributors to CO2 emissions for the last 15 years – a trend that is projected to continue for the next two decades. As shown in Figure 1and Figure 2, the increasing CO2 emissions from residential and commercial buildings are being driven by growing consumption of electricity, including generation losses.

Much of the increased CO2 emissions from residential and commercial electricity use comes from power plants and the relatively inefficient “full fuel cycle” of extraction, processing, transportation, production, and delivery of electricity to the buildings. In contrast, CO2 emissions per residential natural gas customer have fallen by 40% since 1970, and total CO2 emissions have been flat in spite of an increase from 38 million customers in 1970 to 65 million customers in 2007. Aggregate CO2 emissions from natural gas consumption in U.S. buildings are currently at 1990 levels. Due to continued efficiency improvements, they are projected to remain nearly flat through 2030 despite continuing growth in the number of gas customers.

500 1000 1500 2000 2500 3000 1990 1995 2000 2005 2010 2015 2020 2025 2030 Million Metric Tons CO 2 Residential and Commercial CO2 Emission Trends Natural Gas Electricity Source: www.eia.doe.gov/oiaf/1605/ggrpt/excel/historical_co2.xls; EIA Annual Energy Outlook 2009 Figure 1 Gas and Electric CO2 Emission Trends in Residential and Commercial Buildings 1 DOE. 2008. Annual Energy Review 2007, (DOE/EIA-0384(2007)). Washington, D.C. Energy Information Administration, U.S. Department of Energy.

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 4 (1) Energy lostduring generation,transmission,and distribution ofelectricity Residential & Commercial Energy Use Figure 2 Energy Use Trends 1950 – 2007 in Residential and Commercial Buildings2 2.2 Why is Full Fuel Cycle Analysis Needed? Traditionally, residential and commercial energy use discussions have been focused on end use equipment efficiency.

With the advent of the discussions of Global Climate Change and more sophisticated modeling that identifies full cycle energy use, there has been an awareness that the simple end use efficiency metric that has been in place for over 30 years is insufficient as a tool to measure and predict outcomes that society is facing. It is important to define and differentiate alternative metrics that describe energy use and emissions.

The terminology for energy efficiency and emissions metrics used in this report reflect the language used in current legislative initiatives and industry analysis. Those terms are summarized below and presented in more detail in Appendix A.1. • CO2 emission reduction is used to describe the reduction of airborne CO2 produced. It differs from the term carbon output, which includes any other direct emissions of greenhouse gases during normal use such as CH4, HFC’s, PFC’s, and SF6. CO2 represents approximately 85% of total greenhouse gas emissions.

• Full fuel cycle (or source) energy efficiency accounts for the cumulative impact of extraction, processing, transportation, generation, transmission, and distribution losses on overall energy usage.

Unlike site energy efficiency, full fuel cycle is useful for hybrid and multi-fuel consumption calculations. Full fuel cycle means that for every Btu of primary energy usage in the coal mine, only 26%-38% of the energy value gets delivered to the customer. In contrast for every Btu of natural gas in the well, 91% of the energy value gets delivered to the customer. Full fuel cycle energy efficiency shows the impact of a scenario on the nations primary energy consumption. Primary energy consumption is defined by the EIA as the total consumption of petroleum, cola, natural gas, biomass, hydro, and nuclear power.

Source energy efficiency is considered the same as full fuel cycle energy efficiency since both metrics consider extraction, processing, and transportation energy requirements. These metrics show that the direct use of 2 DOE. 2008. Annual Energy Review 2007, (DOE/EIA-0384(2007)). Washington, D.C. Energy Information Administration, U.S. Department of Energy.

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 5 natural gas by residential, commercial, and industrial users is far more energy efficient than the traditional use of coal or natural gas to produce electricity, which then must be delivered for use by homes, businesses, and industries. Full fuel cycle efficiency metrics do have the drawback that they are difficult to measure in the laboratory and are thus difficult to standardize. • Site energy efficiency metrics, such as AFUE3 , are useful for comparing equipment of the same fuel type in an efficiency rating system. These metrics, however, give incomplete information by omitting energy needed to produce and transport the appliance energy to the site.

They do not allow direct comparison of appliances using different fuels (e.g., gas versus electric water heaters). Appliance efficiency and end-use efficiency metrics are also commonly used and have the same drawbacks.

• Energy cost or site energy cost is based on site energy consumption by fuel type as well as peak energy demand for electricity in many buildings. Energy cost is sometimes used as a proxy for energy efficiency in hybrid and multi-fuel appliance consumption calculations. • Energy security is a term in common use that describes the national security derived from domestic production of energy with domestic fuel sources such as coal and natural gas to the exclusion of imported fuels from U.S. trading partners. Energy security considerations drive decision-making outside the realm of economics and infrastructure issues and into the political arena.

For this analysis, energy security impacts were not considered. 3 Annual Fuel Utilization Efficiency

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 6 3.0 Project Overview 3.1 Objectives This study analyzes the benefits of increased “direct use” of natural gas as a cost-effective mechanism to assist the nation in achieving two key goals: (1) increase the nation’s full fuel cycle energy efficiency; and (2) reduce national greenhouse gas (GHG) emissions. Objectives of this study were to: • Assess end use efficiency, national CO2 emission reductions, primary energy savings, and consumer cost savings through encouraging direct use of natural gas to displace less efficient practices by creating economic incentives for equipment and educating consumers to gain immediate benefits, and providing new technologies through R&D investments for sustainable long term benefits.

• Compare the merits of increased direct gas use relative to other options to meet national energy efficiency and CO2 emission reduction goals. In particular, compare the relative merits of providing a comparable level of subsidies to direct use of natural gas for space and water heating versus electric end-use resistance heating and water heating technologies. 3.2 Scope of Work The scope of this project was to use the NEMS-DGU model to determine the impact of three investment options that support the direct use of natural gas to reduce production of CO2 chiefly produced by electric power generation and consumption.

The project provides the core modeling and other analyses needed to provide a firm analytical underpinning for the benefits of increased direct use of natural gas described above, and form the basis for use of the information for educational purposes intended to provide scientific data for the development of local, state, or U.S. climate change policy and associated incentives. This analysis can also expand the base of support for this proposition to others beyond the natural gas industry.

3.3 Approach 3.3.1 Project Team and Modeling Approach GTI teamed with Science Applications International Corporation (SAIC) for this project. SAIC executed all NEMS-DGU model runs, performed analysis of results, and contributed key input to meetings and reports.4 GTI provided input on scenarios, modeling assumptions, and analysis, prepared presentations and reports, and provided overall program management. The steering team provided guidance on program needs, external stakeholder involvement, and publication. Figure 3 shows the NEMS model. NEMS is a national, economy-wide, integrated energy model that analyzes energy supply, conversion, and demand.

EIA uses NEMS to provide U.S. energy market forecasts through 2030 in the EIA Annual Energy Outlook. The residential and commercial modules 4 SAIC is a FORTUNE 500® scientific, engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure, and health.

SAIC is a policy-neutral organization. SAIC executed the NEMS model in this project using input assumptions provided by the project sponsor organizations and companies. Analysis provided in this report is based on the output from the NEMS model as a result of the project sponsors’ input assumptions. The input assumptions, opinions and recommendations in this report are those of the project sponsors, and do not necessarily represent the views of SAIC.

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 7 were the focus of this study and inputs were modified as necessary to meet the objectives of each scenario.

The other 10 modules used Reference Case values for all scenarios. Impact to the environment, consumers, and the natural gas industry was considered and is provided in the tables below and in Appendix A.5 of this report. 3.3.2 Scenario Descriptions The project base case is the AEO2008 Reference Case with modifications to the residential and commercial data input files depending on the scenario to be examined. Table 1 shows the three scenarios that subsidize natural gas direct use and an alternate scenario that subsidizes electric equipment. Each scenario builds on the prior scenario, encompassing the assumptions of its predecessor.

The following discussion provides more details on each scenario.

Figure 3 NEMS Model

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 8 Table 1 NEMS-DGU Model Scenario Descriptions Scenario Description PR1 40% Natural Gas Subsidy PR2 Natural Gas Education PR3 Natural Gas R&D AE50 50% Electric Equipment Subsidy PR1: 40% Natural Gas Subsidy This scenario encourages the acquisition and use of natural gas appliances and discourages purchase of their electric counterparts. The methodology specifically imposed in the modeling was to: • Reduce capital costs of the most-efficient NG appliances & equipment by 40% through a societal subsidy such as a rebate or tax credit; • Eliminate incremental costs of fuel switching (e.g.

the cost of connecting to natural gas); and, • Impose an economic disincentive as a reflection of a policy decision to discourage the use of electric resistance space & water heating systems.

PR2: Natural Gas Education This scenario, which includes the changes made in PR1, attempts to reflect the impact of education and promotion programs intended to improve the perception of natural gas. This is more difficult to quantify than the changes made in the other scenarios in that there is no cost/impact lever in NEMS that would motivate such a change. However, there are behavioral parameters in the model that can be changed to reflect behavior modification efforts. Accordingly, changes to the behavioral input files are made with the understanding that consumer response may be both unpredictable and transitory.

• Increases percentage of new and existing residential and commercial facilities capable of using or switching to NG • Modifies bias parameters related to users’ favorable perception of natural gas PR3: Natural Gas R&D This scenario, which includes scenarios PR1 and PR2, adds the estimated impact of future cost reduction and increased efficiency through R&D on natural gas heat pumps and combined heat and power (CHP) systems. Increased R&D reduces the cost and increases the efficiency of the specified systems. • Reduced cost, increased efficiencies and tax incentives for CHP systems (commercial users only) • Reduced cost and increased efficiencies for natural gas heat pumps AE50: 50% Electric Equipment Subsidy For the purpose of comparison, this study also included a scenario with the aggressive promotion of electricity at the expense of other fuels, particularly natural gas.

This scenario was designed to mirror for electricity, to the extent possible, the conditions in the PR1 and PR2 natural gas scenarios. • Reduces capital cost of electric appliances and equipment by 50%

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 9 • Encourages electricity in the fuel-choice decision for all appliances • Other electric incentives that mirror PR1 and PR2 natural gas incentives

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 10 4.0 Results and Discussion Key findings by topic area are provided below. More detailed charts and comparisons are provided in Appendix A. 4.1 Impact on Building Energy Consumption Figure 4 shows that direct use causes an increase in natural gas residential and commercial consumption.

The impact on the residential sector is triple the impact on the commercial sector because residential has greater flexibility in fuel choice. Reduction in electric consumption is less as a percentage because of the higher baseline usage. While the three natural gas end use equipment subsidy scenarios will result in increased natural gas consumption reporting by LDCs, the per capita natural gas usage will go down. Figure 5 shows that the per capita reduction from residential customers ranges from 3 to 12% by 2020 for the gas subsidy scenarios.

-15% -10% -5% 0% 5% 10% 15% 20% 2005 2010 2015 2020 2025 2030 Residential and Commercial Natural Gas and Electricity Consumption PR3 Scenario: % Change from Reference Case NG: Residential NG: Commercial Electricity: Residential Electricity: Commercial Figure 4 Residential and Commercial Consumption - PR3 Change from Reference Case Figure 5 Residential Gas Use per Customer – Gas Subsidy Scenarios Change from Reference Case

Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 11 4.2 Impact on National Energy Consumption Figure 6 shows that expanded direct gas use decreases total primary energy demand by up to 1.9 Quadrillion Btu’s by 2030 due to reduction in electricity consumption with lower full fuel cycle efficiency.

All natural gas scenarios decrease demand more than the electric subsidy scenario, AE50, due to the differences in full fuel cycle efficiency between gas and electric resistance space heating and water heating.

Figure 6 Total Delivered Energy: All Sectors

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